GlaxoSmithKline and Personalized Medicine Take Another Leap Forward

Earlier this month, the FDA granted an accelerated approval to GlaxoSmithKline (NYSE: GSK) for Mekinist and Tafinlar as an oral combination therapy for treatment of patients with inoperable melanoma. Merck (NYSE: MRK) has a promising new compound that may give it some competition going forward. For now, this relatively straight-forward label expansion holds important lessons for pharmaceutical companies, and investors.

The FDA had already approved Mekinist for patients with BRAF V600E or V600K mutations, and Tafinlar for patients with BRAF V600E only. Although the National Cancer Institute estimates over 920,000 Americans are living with melanoma, this is the first approved combination therapy.

Vertically integratedGlaxo's recently approved combination therapy requires a positive result from BioMérieux's THxID BRAF Kit. As the number of new medicines with required companion diagnostics continues rising, few companies are better positioned to take advantage of this trend than Roche (NASDAQOTH: RHHBY) . The Swiss giant is the world leader in in vitro diagnostics, and has its eye on personalized medicine. Early last year it won approval for Kadcyla, a late stage breast cancer therapy it developed in partnership with Immunogen (NASDAQ: IMGN) . Roche's subsidiary, Ventana, will be providing the companion diagnostic for Kadcyla.

Competition from MerckGlaxo's melanoma combo-therapy is likely to face competition in the future from Merck's PD-1 immunotherapy lambrolizumab (MK-3475). In November 2013, the company released compelling data. At one year, the overall survival rate was 81%. With numbers like this, it's likely that this therapy will hit the market, and it may hit sooner rather than later. Merck has initiated a rolling submission for lambrolizumab's biologics license application. This means the FDA is reviewing data as it becomes available in an attempt to speed this promising therapy into physician's hands.

Why specific is goodMelanoma is one of the most commonly diagnosed cancers, and about half of all melanoma patients harbor a BRAF mutation. Glaxo's combo therapy was approved fairly quickly based on results from a 162 patient, open-label trial with an objective response endpoint, not years of overall survival data. The drug's genetic specificity played a role in this relatively speedy approval.

As an investor, the advantages of an accelerated review are that the company gets to market its product under patent protection for longer. It also means a much smaller investment into clinical development prior to approval. With cancer therapies, the FDA usually wants to measure overall survival rates after two or more years.

In the future, regulators will require Glaxo to submit long-term progression-free, and overall survival data for the combination therapy with a larger patient pool. For now, the company is able to begin marketing the more effective combination therapy, and begin recouping the costs associated with the label expansion.

How to spot a winnerLast year, the FDA made an effort to help certain therapies sail through the roughest patches of development. Expedited pathways existed previously, but none have been as clearly defined as the more recent "Breakthrough Therapy" designation contained within the FDA Safety and Innovation Act of 2012.

The accelerated pathway has two main criteria for the designation. The drug must treat a serious or life threatening condition, and demonstrate substantial improvement over existing therapies. Merck's lambrolizumab, clearly satisfies both and has been given the designation. It will still need to meet stringent safety and efficacy standards, but the FDA is unlikely to require the years of survival data that normally delay a drug's approval.

Final takeGlaxo's combination melanoma therapy did not benefit from the Breakthrough Therapy designation, although it arguably would have satisfied the criteria. One of the components, Taflinar, recently did receive the designation for treatment of non-small cell lung cancer. It seems another important label expansion is on the way.

Glaxo has dozens of compounds in various stages of development, but lately it appears more focused on winners like Taflinar. There will always be pharma companies trying to shoot for the moon. In the long run, however, I believe that investors are better off investing in companies that choose battles they can more easily win.

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